Project risk allocation is usually viewed from the perspective of principals and financiers. The commentary often assumes that project development risks can be laid-off to other project participants based on their perceived ability to manage, absorb or insure them.

This article briefly examines why contractors, equipment suppliers, consultants and other external providers should approach the subject of risk allocation from a different perspective.

 

The Abrahamson Principles

Parties at the negotiating table often hear the saying “the risk should be borne by the party who can best manage it”. For many, this is an article of faith and self-evident, despite the fact it does not stand to reason. Why should a party have to underwrite a risk simply because they posses the skills to manage it?

Those who promote this maxim are often unaware it is based on one of five principles put forward by lawyer Max Abrahamson in the early 1970s. In full, they read as follows:

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A project delivery model which has gained popularity in recent years is the alliance, in which parties with complementary skills and resources undertake to work co-operatively to achieve agreed outcomes on the basis of good faith and trust. Alliances can be used for developing single projects, for ongoing capital works programs, and for the provision of services. There are no standard forms of alliance agreement and many variants on the theme exist, some more accurately describing themselves as ‘alliances’ than others.

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